AAFES officials' names surface in South Korean bribery probe
By FRANKLIN FISHER | STARS AND STRIPES Published: January 7, 2007
PYEONGTAEK, South Korea — The names of two AAFES officials have surfaced in a probe of allegations that a South Korean businessman paid them thousands of dollars so his Internet service company could do lucrative business on U.S. military installations throughout the peninsula, Stars and Stripes has learned.
South Korean authorities contend H. Lee Holloway and Clifton W. Choy received thousands of dollars in bribes from the chief executive of Samsung Rental Corp. Ltd., also known as SSRT, which provides Internet and phone service to numerous installations.
South Korean criminal authorities say SSRT executive Jeong Gi-hwan bribed Choy with $100,000 to help win the contract and later bribed Holloway with $68,000 to help head off possible adverse actions by the Army and Air Force Exchange Service over mounting customer complaints of alleged price gouging and poor service.
The alleged bribes were in cash plus paid entertainment at South Korean bars, restaurants and other venues, said a South Korean law enforcement official familiar with the case. The official spoke on the condition of anonymity.
Among the venues were golf courses and “room salons,” typically pricey parlors where customers are assigned private rooms and paired with attractive young hostesses who devote their attention to them while drinks and food are served.
In addition, authorities say Jeong picked up the tab for a two-day golfing trip he took with Holloway in May 2003 to Korea’s Cheju Island, authorities said.
South Korean prosecutors in Suwon have indicted Jeong on bribery charges in connection with the SSRT contract. He was arrested Sept. 14 and his trial is pending.
Jeong’s lawyers say their client is innocent.
The South Korean indictment against Jeong names Choy and Holloway as the alleged recipients of the bribes and details dates and places of meetings at which bribes were allegedly paid to the two men. South Korean authorities said they turned over to their U.S. law enforcement counterparts documents and other information in the case. The U.S. Air Force Office of Special Investigations is in the final stage of an investigation into the matter that it conducted in cooperation with the Korean National Police, an OSI official said.
Choy and Holloway both declined to discuss the allegations when Stripes contacted them late last week.
Officials at AAFES headquarters in Dallas told Stripes they are cooperating with South Korean and U.S. investigators.
Choy currently is services program manager at AAFES’ Pacific headquarters on Camp Foster, Okinawa, a position he has held since February 2005 and also occupied from November 1995 to December 2003. He worked in the Services Directorate at AAFES headquarters in Dallas from December 2003 to February 2005.
Holloway currently is AAFES general manager at Fort Benning, Ga., and was AAFES central exchange general manager at Osan Air Base, South Korea, from June 2000 through August 2005.
AAFES in 2001 awarded SSRT a $206 million contract to provide Internet and phone service to all military installations on the peninsula, according to South Korean authorities and a former SSRT executive who spoke on the condition of anonymity.
The contract ran from 2001 to 2011 and service was set up at 13 installations, including Osan and Kunsan air bases.
South Korean authorities say Choy gave SSRT insider bidding information and coached its executives on how to craft a bid that would ace out competitors. SSRT officials allegedly changed their bidding paperwork accordingly.
In exchange for his help, South Korean authorities say, Choy received $100,000 in 12 cash payments from November 2001 to August 2005. The payments ranged from $3,000 to $20,000 per meeting, the official said.
By May 2003, SSRT’s service had been the subject of growing complaints from military customers, irate over alleged price gouging and faulty service, the former executive said.
The clamor raised the prospect that AAFES would scrutinize SSRT’s services in ways that might ultimately cost the firm its contract, South Korean and U.S. law enforcement officials said.
Jeong therefore sought Holloway’s aid in averting any threat to the contract, authorities contend.
The alleged aim was to “have Holloway act as a filter, limiting the number of complaints going up to AAFES. … A lot of the customers were writing complaints that they were not pleased with the service and that they were being gouged on prices,” an OSI investigator said.
SSRT customers complained their service was overpriced compared with companies serving customers outside the installations, the former SSRT executive said. For example, SSRT charged $50 for Internet service while some companies provided comparable service at $30 to $35.
Monthly fees for phone service were “even worse,” the former executive said, with SSRT charging $34.68 while others charged about $6 or $7 per month.
Customers also were plagued with technical problems, said the former executive. Those included Internet connection speeds that were perhaps one-fifth the speed of comparable services outside the installations. Internet connections, too, were subject to sudden disconnections that sometimes lasted for two to three days or even a week, the former executive said.
The OSI investigator said Holloway was “not allowing those complaints to filter up the AAFES chain as they should have, but diverting them over to SSRT and saying, ‘You guys should address this, because it’s a problem.’ ”
Despite the problems and complaints, in 2004 the period of the contract was extended from 2011 to 2019, the former executive said.
“That amendment took place while Lee Holloway was … general manager,” the OSI investigator said.
According to South Korean authorities, Jeong sought to bribe Holloway initially with a written agreement to provide him with 10,000 shares of SSRT stock valued at a total of 5 million South Korean won (about $4,500 at current exchange rates).
But the alleged stock deal was never carried out and was replaced with an agreement promising Holloway $65,000 to bankroll a luxury car, South Korean authorities contend. In all, Jeong paid Holloway a total of $68,000, South Korean authorities said.
Those alleged bribes were made in 17 payments ranging from $2,000 to $12,000 from September 2003 to July 2005, the OSI investigator said.
OSI agents are in the final stages of their investigation, an OSI official said. Findings will be forwarded to the U.S. Attorney to weigh what further action, if any, might be warranted.